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Sunday, 18 November 2012

Strategic Analysis of Burberry

Introduction

Strategic development is concerned with the direction and scope of an organization over the long term, which involves the development and deployment of its resources and competencies, through which it achieves competitive advantage in a changing environment. All organizations, whether big or small and regardless of their field of business, are faced with the challenge of strategic development. The challenge can come up from a desire to grasp new opportunities or to overcome significant problems (Johnson, 2008). This essay deals with the strategic development of Burberry, a UK designer brand that was close to being consigned to history a few years ago, to becoming popular fashion brand in the world. Burberry currently ranks at 51st in FTSE 100 index with a market capitalization of over £6.5bn (Stocks Challenge, 2012). The essay will analyze the company’s corporate and business level strategy using the market and resource based view – highlighting which one of these, should the company focus on in order to compete effectively within its current market.

Background

Burberry is an iconic British brand established since 1856 and has been in international business since 1910, having presence in US, Asia, and mainland Europe. In late 1990s, the company was tumbling due to lack of good strategic direction, and at the end of 1998′s financial year Burberry saw its annual profits reduced from £62 million to £25 million. The company desperately needed strategic redirection to regain its iconic status. The company restructured its business model in terms of product development, manufacturing, distribution, and market communications. By the end of year 2011, the company’s profit rose to £295.7 million and £1.5bn in revenues (The Telegraph, 2011).

Overview of Burberry’s Corporate and Business Level Strategies

Corporate level strategy deals with the mission and scope of an organization and determines how value can be added to a business (Johnson et al 2006). In the past decade, Burberry has reinvented itself from being a manufacturer of outerwear apparels into a luxurious, stylish and inspirational lifestyle brand. The company started offering trendy fashion goods along with its regular products. In addition to its strategic repositioning, Burberry underwent expansion through opening of new stores in the current markets as well as international expansion in Mid East, Asia Pacific, Americas, and South Asia (Moore and Birtwistle, 2004).

Business level strategy focuses on competing in particular markets (Johnson et al 2006). At a business level, Burberry adopted the strategy of intensifying its non apparel product lines and accelerated its retail led growth. Burberry started to live-stream a fashion show through which it allowed customers to purchase products straight from the catwalk. A social networking site was introduced as part of the company’s marketing communication to deepen the relationship with customers and attract new ones (Design Council, 2012).

Burberry’s Resources

Burberry’s unique resources include its high brand equity, its popular trench coat product and its signature check design. Burberry, having a long history of establishment, has acquired great brand equity. The brand was commissioned to serve the soldiers in World War 1 to adapt officers’ coats for conditions of contemporary warfare in trenches. Burberry has twice received a Royal warrant; once by Queen Elizabeth II and once by Prince Charles, which means that the company can publicize that they are the supplier of products to the royal family (Instyle, 2012). These historic accomplishments have added great value to the brand.

Burberry has a very popular trench coat product line which also serves as its unique resource. The origin of this product dates back to World War I when the company produced trench coats for soldiers. The trench coat accounts for 30% of all the company’s sale (The Telegraph, 2011). Burberry has set up a dedicated social networking site called ‘The art of Trench’ over which it shares images of people wearing Burberry trench coats. The website showcases images from professional photographers and is partly user generated. The website has a fan following of more than 7 million users (Design Counsil, 2012). The website is part of the company’s marketing communication campaign dedicated for its trench coat product line. In addition to that, the company has a signature check design which is recognized globally. Burberry has a huge base of loyal customers who love its products for its prevalent design aspects. Over the years, Burberry’s check design has become prestigious, serving as an icon of status, class, tradition, and luxury.

Market Positioning

The characteristics of a market are assessed through various models such as analysis of Porter’s five forces of competitors’ analysis. Here, we view Burberry’s market positioning through its competitors analysis. Burberry’s products include ‘continuity products’ which have a product life cycle of a few years, and ‘fashion products’ which are designed to respond to a fashion trend. Therefore, the market positioning of the Burberry is unique and varies as it targets trendy as well as classic customers. Burberry targets all its customers through a common theme of ‘functional luxury’. Burberry’s main competitors include Coach, Armani, Gucci, and Polo, all of which are among top fashion brands in UK and globally. Coach and Gucci, both are more focused towards fashion accessories while Polo and Armani are more focused towards apparels; although all have a range of products in both apparel and accessory categories.

Strategic Management

The resource base view of strategy emphasizes upon a company’s internal capabilities in formulating strategies to achieve a sustainable competitive advantage in its market (Prahalad and Hamel, 1990). It also deals with the competitive environment faced by an organization, but from an inside-out approach which implies that the strategy’s starting point is the internal environment. On the other hand, the market-based view emphasizes upon strategy being based on the market positioning of a company (Rumelt, 1991). In order to sustain the company’s current success and maintain its competitive advantage, Burberry should focus on a resource based strategy. It implies that Burberry should continue its effort in maintaining its iconic luxury brand status and built upon its brand equity. The company has a history of more than 150 years of establishment, with having served the British soldiers in the World War I, and having received two Royal Warrants; all of which attach a strong sense of ‘Britishness’ with the brand. In addition to its brand equity, the company has a unique resource in terms of a specialized product line i.e. its iconic ‘trench coat’ with a unique complementary social media marketing communication platform. Additionally, the company has initiated a unique way of promoting its brand through fashion shows which serves not only as a marketing but a sales channel as well. Burberry should keep up its efforts for continuous innovation and promotion for its product. Furthermore, the company has a signature check design that symbolizes Burberry’s status of a classic and luxurious brand. The company should hold on to its signature check design, and apply it to its new product lines.

Conclusion

Burberry should deploy and develop these unique resources to compete effectively within its current market. Burberry should capitalize upon its high brand equity to develop and enhance new product lines such as home décor, children’s wear, cosmetics and perfumes, all of which are currently being offered by its competitors in its existing market. With Burberry having a foothold in both, apparels and accessories product categories, a further diversification of its products portfolio would put the company in a better position to grab a bigger market share against its competitors. Although Burberry’s expansion into current and new markets over the years has affected the company’s growth and profitability, the company’s success can be largely attributed to its unique resources and capabilities. These unique resources coupled with other managerial, production and distribution capabilities, have served as the company’s’ underlying success factors and should be continually utilized for its future strategic development.